There is reason to be hopeful that the worst of the Coronavirus’s impact on the economy is behind us. While the stock markets crashed in March, by mid-June they had climbed about 80% of the way back to their pre-crash valuations. What’s more, retail sales jumped 18% in May, an all-time record, bringing much needed revenues to businesses after the pain of March and April.
Owning a small or mid-sized business in the midst of a pandemic ain’t easy. But if you’ve made it this far, then there are reasons to be optimistic. Here are 5 things you can do to prepare your business finances in H2 2020 and beyond.
1. Redo Your 2020 Budget
In the military it has long been said that no battle plan survives first contact with the enemy. If 2020 has taught us anything about business, it’s that no budget survives contact with an unforeseen shock like a global pandemic. With that said a budget is just an estimate, not something you can adhere to down to the last dollar. Budgeting always requires a great deal of flexibility – especially when preparing for what is sure to be an unpredictable second half of 2020.
Most businesses have cut costs since the start of the pandemic, and we’re not here to convince you otherwise. However, be careful not to cut too much. According to a Harvard Business Review study of the performance of thousands of public companies before and after the Great Recession of 2007, companies that spent more aggressively on things like marketing and R&D during the crisis enjoyed bigger profits in the three years after.
2. Apply for Affordable Financing
In normal times, most small businesses need some form of financing outside of cash flow to be able to grow. In COVID-19-impacted times, external financing can ensure your survival – and also enable your business to grow if you spend it wisely.
Whether you’re in the market for a business term loan, line of credit, accounts payable loan, or any other form of business financing, lenders will assess your business with a fine-tooth comb. Typical qualifying requirements for a business loan include: time in business, gross monthly revenue, and credit score.
The good news to come out of COVID -19 from a business perspective is record-low interest rates. From federal government programs like the Paycheck Protection Program and SBA Loans through to conventional funding like business loans and invoice factoring, borrowing is now more affordable than before the virus. Click here to read the Top10.com guide to business funding options during COVID -19.
3. Shore up Your Emergency Fund
When the first shocks of the coronavirus were felt, it caused many business owners to drain their emergency funds. That’s legitimate – after all, COVID -19 economic restrictions were the very definition of an emergency. However, the end result is that many business owners now have no funds to protect themselves in the event of a future emergency.
Your emergency fund is something you can access right away, no matter the type of emergency. It allows you to keep operating, even if you don’t have instant access to other funds. Fallen victim to a cyber-attack? Waiting for some overdue invoices to be paid? Been offered the chance to buy out a competitor on the cheap? The need for cold hard cash can arise in the most unexpected ways.
Business guru Dave Ramsey recommends treating your retained earnings, the net income left in your business after it has paid out dividends to shareholders, as your emergency fund. He suggests retaining enough to cover six months of operating expenses, noting, “that’s a lot of cash, but you’re your own credit line, too.”
4. Automate What You Can
Automation used to be something big businesses did, but this is no longer the case. These days, there are many types of automation tools that are affordable enough for small businesses to use. Automation reduces your expenditure, which is especially useful in these uncertain economic times.
Taking care of your business finances can be incredibly time-consuming. If you’re fortunate enough to have employees, that brings with it all sorts of things, like payroll and taxation, that can be a real drain on your resources. Thankfully, there are payroll software programs and services to help you take care of these things.
When it comes to the best business payroll services, it’s important to note that payroll software is something you can use to automate payroll processes. It integrates with other programs, syncing data into your payroll so that you don’t have waste energy tracking down information or cross-referencing time sheets. A payroll service is an external company that handles all your payroll, saving you the cost of employing someone to the job internally. Both options can save you time and money.
5. Stay Alert to the Economy
No matter how focused you are on your business, never lose sight of the world around you. When big economic events like COVID -19 occur, businesses are invariably among the first to feel the impact. When the economy is going well, business is good. But when it’s not, hold tight.
Brian Moran, CEO, Small Business Edge, says losing his small business in the Great Recession has helped him prepare for this recession. Moran lists 5 ways to prepare your business for recession – these are relevant now while we’re in the middle of a recession and in planning for future recession:
- Watch for red flags, e.g. slow-paying receivables, tightening credit lines, or something happening upstream within your supply chains.
- Stay on top of your receivables, otherwise you run the risk of not having enough cash on hand when disaster strikes.
- Develop alternative revenue streams built around what your customers might need if there’s a downturn in the economy.
- Review your contracts and agreements, so that you’re not stuck with a 10-year lease on new office space when recession hits.
- Look at every segment of your businesses and ask “What if?” For example: What if a recession hits our business? What if the bank pulls out out of a line of credit? What if our largest customer goes out of business and takes our receivables with them?
Your Finances Are the Heart of Your Business
The main reason businesses fail is because of inadequate cash reserves or poor cash flow management – and that is equally true during a recession as in normal times. Either way, your finances are the beating heart of your business. If you fail to properly manage your finances, this can pose a mortal danger to your company. If your finances are well-organized, then you can feel confident to meet even the greatest of challenges.